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Investing for retirement with a DIY mindset can keep fees low

My copy of Organic Gardening magazine years ago suggested that the best way to get the outer shells off walnuts was to “spread them out over your driveway and drive your Volvo over them repeatedly.” The idea that subscribers all drove Volvos was just axiomatic. In the same vein, investors inclined to be “do-it-yourselfers,” or DIYs, find themselves beating a path to organizations like Vanguard, TIAA CREF, USAA — the shockingly small number of mutual fund companies whose business models are effectively nonprofit.

It may surprise most people to learn that the directors of a mutual fund are not required to keep the fund with the fund family it may have been part of since its inception. On paper, at least, the fund’s directors could yank the fund from, say, Fidelity, and take it to another fund family, which might do the record keeping, administration and marketing for what would be a better deal at a cheaper cost to the investors. In theory, they are obligated to do this, but it never happens. The industry rolls on from year to year enjoying its status as what Forbes once described as “The World’s Most Profitable Business.” Why? Because customers never get a bill or have to write a check. Expenses are just automatically deducted from investors’ accounts 365 days a year.

Volvo drivers crushing their own walnuts typify those who are too resourceful to be victimized. They have joined organizations around the country like the American Association of Individual Investors (AAII) and, more recently, Bogleheads.org. The latter refers to John Bogle, the founder of the Vanguard family of funds — a mutual fund company that operates like a giant cooperative offering extremely low-cost investment services. Thanks to the growing realization that keeping fees low leads to substantial and predictably better returns over time, the company is now the largest fund organization in the world — all of which they accomplished with comparatively little advertising.

AAII has been around for years, with an extremely valuable monthly publication and regional chapters holding meetings, which people can attend. Bogleheads.org is newer and offers a similar platform for sharing investment knowledge and information. The difference is that AAII reflects more of a suit-and-tie culture while Bogleheads.org smacks of a sport coat over jeans and a black T-shirt. Largely forum-based with online information, Bogleheads.org tends more toward a virtual model for distributing ideas. There is no monthly hard-copy publication.

There are some grass-roots chapters of Bogleheads that are loosely knit groups of investors who actually like to get together and share what they know. Day-to-day communication between chapter members is conducted online, and meetings are scheduled randomly for some and at regular times for others. A search for Bogleheads local chapters will take you to instructions with everything you need to know. You can find out where to attend a chapter near you, or you can start your own chapter with just five members. There are national conferences at which John Bogle himself has appeared 11 times so far.

When employees were asked how they decided on their 401(k) investment choices, the most common answer 80 percent of the time was, “I asked my friends.” There’s something to be said for the wisdom of crowds and personal interaction as an enjoyable and compelling way to prompt critical thinking and to exchange information. So, hop in your Subaru (today’s automobile brand whose owners, according to a survey, sport the highest IQs) and go check out the nearest Bogleheads chapter. For starters, one San Jose group can be reached at info@southbaybogleheads.com.

Bottom line: The combination of inexpensive funds and self-help investment advice can pay big dividends compared to the costs of similar services from the mainstream financial community.

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